Is It Permissible to Invest in Companies That Carry Interest-Based Debt?

Answered by Shaykh Muhammad Carr

Question 

What is the ruling on buying stocks based on companies that produce net positive value creation but carry interest-based debt of more than 30%?

The debt funds genuine productive investments, for example, an engineering firm that builds infrastructure. 

Answer

In the Name of Allah, the Most Merciful and Compassionate.

May Allah reward you for ensuring that your investments are shari’a-compliant.

It is not permissible to buy stocks of companies that carry interest-based debt of more than thirty percent. The purpose of this quantitative filter is to limit the company’s exposure to interest payments. [AAOIFI Sharia Standards]

The above filter is applied unrestrictedly, whether the debt funds are real productive activity or not.

In Islamic Law, the means and ends must be justified. Interestingly, after their defeat at Uhud, the believers considered funding their war efforts through usurious means.

Despite the noble end they sought, Allah prohibited them from employing an impermissible means to attain their otherwise justified objective.

‘So fear Allah all you can, and hear, obey and expend: It were better for your very selves’. [Quran 64,16]

Invest in morally and ethically sound companies that meet shari’a qualitative and quantitative criteria. Allah is the best of providers for those seeking provision, employing the most lawful means at their disposal. By the grace and mercy of Allah, shari’a-compliant funds are increasingly outperforming their contemporary counterparts.

I pray this is of benefit and Allah guides us all.

Allah knows best

[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani

Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefitted from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door for students. As an imam, he has the unique opportunity to serve his community in daily life.

In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari’ah Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.